Just about nailed it except for one detail.
It was a combination of things. Denethor had been using one of the Palantir (Seeing Stones) of Feanor for quite some time; so had Sauron (the Minas Ithil stone I think...). Sauron had corrupted Denethor's mind just as he did Saruman's through the use of Ithil stone. Add Boromir's death combined with Faramir being seriously wounded to all of this, and you have your classical nutcase ready to torch himself.
I haven't seen ROTK yet (to be remedied in the next few days) but they are probably referring to Minas Ithil as Minas Morgul in the movie.
